Premier Wen answers Qs at Davos Forum

Q: China and the US are the two largest economies in the world. Their relations surely draw a lot of attention. The two countries have close business ties, yet frictions have also occurred from time to time. In particular when world economic recovery is sluggish, some in the US have concerns about China's trade practices related to exchange rate and trading rules. Some even blame China's manufacturing sector for the high unemployment rate in the United States. What's your view on fair trade? How do you see China-US economic relations?

Wen Jiabao: The United States is the biggest developed country and China the biggest developing country in the world. We have the largest and second largest economies in the world. Cooperation between us not only involves the interests of our two countries and peoples, but also affects the whole world. Both countries stand to gain from cooperation and lose from confrontation. I believe that China and the United States should have cooperation, not confrontation.

China and the United States are each other's biggest trading partner. According to Chinese statistics, trade between the two countries topped $446.7 billion last year. Despite the difficult situation this year, China-US trade has continued to grow.

Many US companies have invested in China and most of them have made profits even in time of the financial crisis. Here I want to emphasize that China never pursues a surplus in bilateral trade. We want to import more from the United States. Frankly speaking, as there is a lack of genuine mutual trust between the two sides, the US still imposes restrictions on high-tech exports to China.

Let me give you an example. Two or three decades ago, we imported a number of US Black Hawk helicopters. They were products from 40 to 50 years ago in the United States and were not highly sophisticated. We needed helicopters in the disaster relief after the Wenchuan earthquake and found that those Black Hawk helicopters were short of some parts and components. We then asked the United States to ease export control of those parts and components to China. But even such a small request was turned down by the US side.

In the recent presidential campaign, both the Democrats and Republicans said they would reject "made in China" products so as to boost employment at home, and used this as a bargain chip for winning the election. Even the US athletes wearing "made in China" clothes at the London Olympics became a headline.

We feel confused about this. Yet China has exercised restraint. We never ask our consumers not to wear Nike shoes or not to buy iPad and iPhone. I hope this is only a brief episode in the campaign season.

We need to follow a sensible approach in governing a country and dealing with state-to-state relations, including business ties. For fair trade, the most important thing is to observe the universally recognized norms, namely the WTO rules.

As for the exchange rate, it should not be a problem either. I believe all entrepreneurs present here know this clearly. Since we launched the reform of the RMB exchange rate regime in July 2005, the RMB has appreciated by 30 percent against the US dollar, and its real effective exchange rate has appreciated 29.5 percent. I am happy to see that an article in a US newspaper a few days ago said that the RMB exchange rate should no longer be an obstacle to China-US trade. The value of RMB is basically at a balanced level and the RMB even depreciated recently at the Hong Kong NDF market.

What we need is cooperation. I proposed to President Obama in person twice in 2010 and 2011 that China and the US should engage in large-scale trade, investment and financial cooperation, and put forward a specific cooperation plan. I believe such cooperation will help the US achieve an early economic recovery and create jobs. It will also help elevate our economic cooperation to a new level and ensure its long-term, steady, sustainable development.

Q: Mr. Premier, in the first half of this year, China's small and medium-sized enterprises (SMEs) encountered such problems as weak demand in Europe and the United States, financing difficulties and rising labor cost. What policies and measures will the Chinese government adopt to help the SMEs grow better and faster?

Wen Jiabao: The SMEs, including mirco-enterprises, are a major source of jobs and have the strongest capacity for innovation and development.

The main problems they now face are: First, they find financing inaccessible and unaffordable, and they cannot get strong financial support. Second, they face high overall costs. This includes wage cost, payments of the five insurances and housing fund for their employees and cost of production factors. These have weighed on the competitiveness of those enterprises. The government must give them support.

Now the two most important things are: First, we will continue to carry out structural tax cuts for the SMEs, micro-enterprises in particular, to ease their burden. Second, we must level the playing field for the SMEs. We will increase financial support for them. Financial institutions should ensure that the SMEs get the credit they need at reasonable interest rates and cut the intermediate fees.